WBB Securities, LLC
• • Stephen G. Brozak [email protected] (908) 518-7610
Omeros Corporation (NasdaqGM: OMER) Updating Coverage
Continuing Strong Buy Rating and August 18, 2015 Raising Price Target to $75.00
Omidria™ Sales Initiated and Positive Phase II Progress on OMS721 for Orphan Disorders
Omeros Corporation (NASDAQ: OMER) reported that the U.S. launch of Omidria (phenylephrine and ketorolac Current Price $12.96$24.20 injection (1% / 0.3%)) began in April 2015 and achieved $3.125 million in sales for the quarter. Omidria is used in 12 Month Target Price $$XX75.00 cataract surgery and lens replacement procedures to 12 Month Trading Range $11.18- $27.64 maintain pupil dilation, prevent pupil constriction, and reduce Market Capitalization (Mil) $491.00 postoperative eye pain. On August 3, Omidria received Shares Outstanding (Mil) 37.885 marketing authorization for all EU nations plus Iceland, Avg. Daily Volume 521,408 Lichtenstein, and Norway. Price and reimbursement for Omidria will be decided individually for each country. L. T. Debt (Mil) $23.9$??
On July 27, 2015, Par Pharmaceuticals, Inc. and its subsidiary, Dividend/Yield N/A Par Sterile Products, LLC (privately owned), filed an ANDA with $0.21$0.60 the FDA for a generic version of Omidria under the auspices of Book Value P/S a Paragraph IV filling, a provision under the Hatch-Waxman Act. Par Pharmaceuticals is scheduled to be acquired by Endo NASDAQ Composite 49,976.195,091.70 International plc (ENDP) later this year, making the combined S&P 500 2,099.12,102.44 entity the fifth largest generic drug company with $4.2 billion in Historical Performance - Page 7 revenue. OMER announced yesterday, August 17, its intent to Price and Volume Chart - Page 8 file a patent infringement suit against Par within 45 days of notification of the Par filing. OMER’s action will halt FDA’s consideration of Par’s application for 30 months, allowing OMER ample time to defend its market exclusivity. Par is unlikely to be granted an ANDA because of Omeros’ strong intellectual property position.
As we wrote in a note on the company’s announcement yesterday, generic companies employ such tactics often, but only for incredibly valuable assets. As most pharmaceutical investors know, once a generic drug maker enters a market, the price for that drug collapses immediately by 60% or more. A company like Par would not embark on such a campaign for a drug that generates $250 million as a branded product. In order for it to be worth the resources, a drug would have to represent a substantial branded market to be worth pursuing as a generic. For this reason we feel that Par’s overtures are only a validation of the market opportunity Omidria represents as a blockbuster product.
Today OMER released news regarding a trial for rare diseases. OMER is currently conducting a Phase II, two-stage clinical trial of OMS721, an orphan drug for atypical hemolytic uremic syndrome (aHUS) and other thrombotic microangiopathies (TMAs). TMAs are a family of rare, debilitating and life- threatening disorders that cause excessive clots in the blood vessels of organs, thereby blocking the flow of nutrients and oxygen to the tissue, mostly in the kidneys and brain. By the end of the study, 29 people will have been administered OMS721. OMS721 will be tested in three different forms of TMA - atypical hemolytic uremic syndrome (aHUS), hematopoietic stem cell transplant (HSCT)-associated TMA, and refractory thrombotic thrombocytopenic purpura (TTP). A dose-escalation trial in three cohorts of three patients each is the first stage. Then, once established, the appropriate dose will be administered to 10 people with aHUS and 10 with HSCT-TMA or TTP. The first two dose-escalation cohorts in the dose- escalation stage of the trial are now complete and dosing for the third cohort has begun.
The characteristics of disease are below normal platelet counts, high presence of schistocytes (which are sheared red blood cells that indicate the presence of blood clots in the body), undetectable or low haptoglobin levels, and elevated plasma lactate dehydrogenase (LDH). The company released the following interim data from the dose escalation stage of the Phase II:
In the mid-dose cohort, the two patients with plasma therapy-resistant aHUS demonstrated:
• 47% increase in mean platelet count, resulting in both patients having counts in the normal range • 86% decrease in mean schistocyte count, with schistocytes disappearing in one patient • 71% increase in mean haptoglobin with both patients reaching the normal range during treatment, one slipping slightly below normal at one week following the last dose • 5% decrease in the mean levels of LDH, with levels in both patients remaining slightly elevated above normal range
The first patient in the high-dose cohort – a plasma therapy-resistant aHUS patient with additional complicating disorders including hepatitis C, cryoglobulinemia and lymphoma – has also completed treatment with OMS721. Prior to OMS721 treatment, the patient required repeated dialysis. Throughout treatment and following completion of the OMS721 course, the patient to date has remained off dialysis. Hematological and renal parameters showed:
• 63% improvement in platelet count, returning to normal levels • 100% decrease in schistocytes • Haptoglobin increased from an undetectable level and normalized • 43% decrease in LDH, resulting in a level just slightly above normal • 24% reduction in creatinine level
Excellent data on the primary endpoint - change in baseline platelet count - continues to accrue in the Phase II study. All three aHUS patients that have completed the study from the mid- and high-dose cohorts (two from the mid-dose, one from the high-dose) had normal platelet count after the treatment period, with an average increase of 68,000 platelets/mL or a 47% increase from baseline (p = 0.0055). The aHUS patient receiving the highest dose had a 63% improvement in platelet count, and a 100% decrease in schistocytes. The game-changing benefit of the drug is becoming increasingly apparent.
With no major adverse events reported, these data points are highly encouraging. TMA linked disorders are rare and life threatening. Disease can occur in infants to adults, and can be triggered by infections, some cancers, adverse reactions to medications, or due to the inherent deficiencies of certain proteins linked to specific genetic disorders. In the past, plasma transfusions and high dose steroids were used for treatment. This dropped mortality, but not significantly, and does not resolve the underlying issues, making treatment chronic. The only other treatment option currently available is Alexion’s drug, Soliris® (also a monoclonal antibody), which costs more than $440,000 per year per patient in the U.S.
OMER is uniquely positioned to serve the cataract and intraocular lens replacement surgical market with Omidria, an approved unique product that has attracted the attention of a major player in the generic drug business. The company also has a second promising product with incredible revenue potential in OMS721 that could disrupt Alexion’s Soliris in use in patients with aHUS.
As we have stated before, we believe that OMER is uniquely positioned to serve the cataract and intraocular lens replacement surgical market with Omidria, an approved unique product that has attracted the attention of a major player in the generic drug business. With this morning OMER announcement of clinical results for a second promising product with high revenue potential in OMS721, the valuation case only becomes stronger. We are therefore reaffirming our Strong Buy recommendation of OMER and raising our 12-Month Target Price to $75.00.
______WBB SECURITIES, LLC 2 Valuation
Rating Legend:
Strong Buy – Should be aggressively purchased. Sell – Stock should be sold on market strength. Buy – Should be purchased on market weakness. Sell Short – Should be aggressively sold. Hold – Fairly valued. Speculative Buy – For aggressive accounts only.
These have been turbulent times for the biotech capital markets, and investors have become used to overnight billion dollar valuations on companies with limited or no revenues and, even worse, no visibility to any sales. Given this market foundation we believe OMER stands out from its peers with its current strengths and future potential. It has proven it can develop and commercialize products with its first drug, the recently launched Omidria. It now seems to be following up with OMS721 in TMAs as the next brick in its franchise.
To detail this accounting, we begin by describing our modeling assumptions. Using a share count of 38 million, the primary value driver is clearly Omidria which has begun its initial launch. We believe it is a blockbuster product whose value has just been externally confirmed by the ANDA filed by Par pharmaceuticals. We now add the value of OMS 721 to the mix and the proposition we put forward is that given its orphan market, its clinical and commercial path is extraordinarily streamlined. We add a collective value of the OMER franchise, platform and pipeline including the GPCR programs and below we bulletize the aggregate value for our 12- month target of $75.00:
• Omidria – $1.5 billion • OMER Platform/Pipeline – $1.0 billion • OMS 721 – $0.5 billion
Omeros Pipeline
Source: Omeros Corp.
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Omeros Products
Omidria is OMER’s lead product. It is approved by the FDA in the US and by the European Commission in all EU states, Iceland, Norway and Lichtenstein. Omidria is used intraoperatively for cataract or intraocular lens replacement surgery. The product is a proprietary combination of the pupil-dilating agent phenylephrine and the anti-inflammatory agent ketorolac (1% / 0.3%) to reduce pupil constriction during surgery and prevent pain post-surgery.
OMS721 is a human monoclonal antibody for TMA. TMA is a pathology that results in thrombosis (blood clot within a blood vessel) in capillaries and arterioles due to an endothelial injury (cells that line the circulatory system). It may be seen in association with thrombocytopenia (low blood platelet count), anemia, purpura (reddish purple spots on the skin) and renal failure. OMS721 works by targeting MASP-2, a pro-inflammatory protein that plays a role in complement-mediated TMAs. The advantage of MASP-2 is that it does not appear to be involved in the body’s normal antibody- dependent complement activation system, so targeting it will not drastically affect the body’s immune system. Additionally, OMER controls the worldwide rights to MASP-2 and all therapeutics targeting MASP-2.
OMER has an ongoing OMS721 Phase II study in patients with TMAs, including those with aHUS, which is a rare, life-threatening, progressive disease that frequently has a genetic component. In most cases aHUS is caused by chronic, uncontrolled activation of a branch of the body’s immune system that destroys and removes foreign particles. aHUS affects both children and adults and is characterized by TMAs, which can lead to stroke, heart attack, kidney failure, and death.
Dosing has been completed in the first two cohorts of the OMS721 trial, with the second cohort receiving a higher dose than the first. As in the first cohort, all patients in the second cohort received OMS721 and improvements were observed across a wide range of markers of TMA disease activity.
On July 23, 2015 OMER announced that the FDA granted Fast Track status to OMS721 for the treatment of aHUS. The product had already received orphan drug designation for the prevention of complement-mediated TMAs. In April 2015, a European regulatory authority approved the drug for a compassionate use study for two patients who experienced benefit across multiple biomarkers while in the Phase II trial. Both patients were suffering from aHUS.
OMS824 is a treatment being developed for the treatment of Huntington’s disease and schizophrenia. The compound inhibits PDE10, an enzyme expressed in parts of the brain and linked to diseases that affect cognition and psychomotor function. OMS824 received orphan drug designation in 3Q13 and Fast Track status in 1Q14 from the FDA for Huntington’s disease. However, the FDA suspended clinical development of the product last year due to an observation in rats at the maximum dose tested. OMER “does not believe that the observation in the rats is caused by OMS824.” OMER finalized the evaluation of data from nonclinical rat and non-human primate studies in its OMS824 program and submitted the package of nonclinical materials requested by the FDA, seeking to re-initiate its OMS824 Phase II Huntington's
______WBB SECURITIES, LLC 4 disease and schizophrenia programs. The company looks forward to re-activating enrollment in the OMS824 program in the near future.
OMS103 is a proprietary combination of anti-inflammatory and analgesic agents (amitriptyline, ketoprofen and oxymetazoline) added to irrigation solution for arthroscopic meniscectomy surgery of the knee that has completed a Phase III study in which it achieved success in the secondary endpoint of reducing early postoperative pain. OMER is considering whether to initiate another Phase III trial in which reducing postoperative pain is the primary endpoint.
On June 16, 2015, OMER announced an exclusive license agreement with affiliates of Fagron NV (EBR: FAGR) for the commercialization of OMS103. OMS103 is added to standard irrigation solution used in arthroscopy to block inflammation, reduce pain and improve postoperative results.
FAGR received an exclusive license to OMS103 intellectual property, manufacturing information, and clinical data in the U.S. In exchange, FAGR will pay OMER a majority share of gross revenues from OMS103 and provide a minimum revenue per vial sold. In addition, FAGR will pay OMER up $10 million in commercial milestones, some of which will be revenue-share enhancement on early sales. Later this year, FAGR is scheduled to open a state-of-the-art, highly automated outsourcing facility to produce commercial supplies of OMS103.
G Protein-Coupled Receptors
OMER is a leader in unlocking orphan G protein-coupled receptors (GPCRs). There are approximately 120 GPCRs with no known ligand. Approximately 30-40% of currently marketed drugs target a small range of GPCRs. OMER has identified and confirmed compounds that interact selectively with the following orphan receptors:
Metabolic GPCR GPCR Oncology Indications Indications Obesity, Cognitive GPR12 GPR19 Metastatic Melanoma Impairments, Motor Disorders Obesity, GPR21 GPR39 Esophageal Cancer Diabetes GPR25 Arterial Stiffness GPR65 Cancer Hypertension, GPR37L1 Cardiac GPR80 Hepatocellular Carcinoma
Hypertrophy Metabolic GPR50 GPR87 Squamous Cell Carcinoma Disorders Appetite, Body GPR82 GPR150 Ovarian Cancer Weight Metastatic Epithelial GPR132 Atherosclerosis GPR161 Cancers, Cancer Stem Cells Melanoma, Grave’s GPR176 Atherosclerosis GPR174 Disease Cancer Stem Cells, Bone GPR101 Eating Disorders LGR4 Diseases ______WBB SECURITIES, LLC 5 Cancer Stem Cells, Obesity, SREB1/GPR27 LGR5 Esophageal Schizophrenia Adenocarcinoma Obesity, SREB2/GPR85 OGR1/GPR68 Ovarian, Prostate Cancers Schizophrenia Obesity, Acute Lymphoblastic SREB3/GPR173 P2Y8 Schizophrenia Leukemia CNS GPCR GPCR Miscellaneous Indications Indications Multiple HIV Enteropathy, GPR17 GPR15 Sclerosis Rheumatoid Arthritis Anxiety GPR31 GPR22 Osteoarthritis Disorders Parkinson’s Acute Inflammatory GPR37 GPR32 Disease Responses GPR52 Schizophrenia GPR183 Humoral Immunity Rheumatoid Arthritis, GPR63 Autism CCRL2 Immune Disorders Bipolar Hair Follicle Stem Cells, GPR78 Disorder, LGR6 Wound Repair Schizophrenia Memory and Orphans Unlocked with No Known GPR83 Inflammatory Indications Conditions GPR20, GPR45, GPR135, GPR141, GPR139 Motor Disorders GPR171, GPR182, OPN5 Cognition; GPR151 PTSD GPR153 Schizophrenia Neuropsychiatric GPR162 Disorders Cognitive MAS1 Impairments MRGE Pain MRGF Pain Circadian OPN4 Rhythm, Sleep Disorders
Source: Omeros Corporation
Management
Gregory A. Demopulos, MD – Chairman and Chief Executive Officer is one of OMER’s founders and has served as President, Chief Executive Officer and Chairman of the Board of Directors since June 1994. Prior to founding OMER, Dr. Demopulos completed his residency in orthopedic surgery at Stanford University and his fellowship training at Duke University. He received his M.D. from the Stanford University School of Medicine and his B.S. from Stanford University.
______WBB SECURITIES, LLC 6 Timothy M. Duffy – Vice President, Business Development since March 2010. From 2008 to March 2010, Mr. Duffy served as the managing director of Pacific Crest Ventures, a life science consulting firm. From 2004 through 2008, Mr. Duffy served at MDRNA, Inc., most recently as Chief Business Officer. Prior to MDRNA, Mr. Duffy served as vice president, business development at Prometheus Laboratories, Inc., and as a customer marketing manager at The Procter & Gamble Company. Mr. Duffy received his B.S. from Loras College.
Kenneth M. Ferguson, Ph.D. – Vice President, Development and Chief Development Officer served as Vice President, Development since November 2010, and as Chief Development Officer since October 2012. Prior to the acquisition of ICOS Corporation in 2007 by Eli Lilly and Company, he served as vice president of therapeutic development at ICOS. Dr. Ferguson also served as chief operating officer, chief scientific officer and a member of the board of managers of Lilly ICOS LLC. Following the 2007 acquisition, he served as president of ICOS, managing its integration into Eli Lilly. Before ICOS, Dr. Ferguson worked for Cold Spring Harbor Laboratory. He holds a Ph.D. in pharmacology from the University of Texas Health Science Center and a B.S. in biological sciences from Cornell University.
George A. Gaitanaris, MD, PhD – Vice President, Science and Chief Scientific Officer served as vice president, science since August 2006 and as chief scientific officer since January 2012. From August 2003 to acquisition of Nura, Inc. in August 2006, Dr. Gaitanaris served as the chief scientific officer of Nura, a company that he co-founded and that developed treatments for central nervous system disorders. From 2000 to 2003, he served as president and chief scientific officer of Primal, Inc., a biotechnology company that was acquired by Nura in 2003. Prior to co- founding Primal, he served as staff scientist at the National Cancer Institute. Dr. Gaitanaris received his Ph.D. in cellular, molecular and biophysical studies and his M.Ph. and M.A. from Columbia University and his M.D. from the Aristotelian University of Greece.
J. Steven Whitaker, M.D., J.D. – Vice President, Clinical Development and Chief Medical Officer since March 2010. From May 2008 to March 2010, Dr. Whitaker served as the chief medical officer, vice president of clinical development at Allon Therapeutics, Inc. From August 2007 to May 2008, he served as a medical consultant to Accelerator Corporation. From May 1994 to May 2007, Dr. Whitaker served at ICOS Corporation, most recently as Vice President, Clinical Research and Cialis® Global Medical Director until ICOS was acquired by Eli Lilly & Company in 2007. Dr. Whitaker received his M.D. from the Indiana University School of Medicine, his J.D. from the University of Washington and his B.S. from Butler University.
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Historical & Future EPS Performance
EPS 2014 2015 2016 Q1 (0.54)A (0.51)A Q2 (0.53)A (0.44)A Q3 (0.54)A Q4 (0.61)A Year (2.22)A .25E 1.00E
P/E NM NM NM EPS Growth NM NM NM FY Rev. (Mil) .539A 30.0E 160.0E FY:DEC
Other Companies Mentioned in This Report: Alexion Pharmaceuticals, Inc. (ALXN) Endo International plc (ENDP) Fagron NV (EBR: FAGR)
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Price and Volume
1 2 3 4 6 7 8 5
76 Month Price and Trading Volume
Initiated coverage of OMER on 10/26/09 at $6.58 with a Buy Rating and 12-month price target
of $9.00 1 Updated coverage of OMER on 10/26/10 at $8.23 with a Strong Buy Rating and 12-month
price target of $10.50 2 Updated coverage of OMER on 9/26/11 at $3.77 with a Strong Buy Rating and 12-month price
target of $10.50 3 Updated coverage of OMER on 2/07/12 at $5.94 with a Strong Buy Rating and 12-month price 4 target of $10.50
Updated coverage of OMER on 3/22/12 at $9.98 with a Strong Buy Rating and 12-month price 5 target of $20.00 Updated coverage of OMER on 4/18/13 at $3.84 with a Strong Buy Rating and 12-month price 6 target of $20.00 Updated coverage of OMER on 3/28/14 at $11.26 with a Strong Buy Rating and 12-month 7 price target of $30.00 Updated coverage of OMER on 6/3/14 at $11.83 with a Strong Buy Rating and 12-month price 8 target of $60.00
______WBB SECURITIES, LLC 9 Distribution of Ratings and Disclosure of Banking Relationships: The following table shows WBB’s ratings distribution expressed as a percentage of all securities rated as of the end of the most recent calendar quarter, as well as the percentage of subject companies within each rating category for whom WBB has provided investment banking services within the previous 12 months. WBB Securities has acted as a Co- Manager of OMER in the last 12-months.
Percentage of Percentage of Covered Securities Banking Clients Buy 67% 22% Hold 15% 0%
Sell 18% 0%
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